A Quote That Really Ties The Room Together

The Delta variant continued to dominate the news cycle Friday.

At least in the very near-term, market participants won’t likely enjoy any respite from reports documenting the strain’s spread, leaving investors to ponder its capacity to evade the vaccines and the potential ramifications for the global recovery.

A study in Israel found that although the Pfizer vaccine was 88% and 91% effective at protecting against hospitalization and severe illness, respectively, its capacity to prevent infection by the variant was minimal at just under 40%. That finding is disputed. “The report said that the data could be skewed because of different ways of testing vaccinated groups of people versus those who hadn’t been inoculated,” Bloomberg wrote, summarizing. And it appears incongruous with a new study published in The New England Journal of Medicine.

Whatever the case, the world is concerned. CDC Director Rochelle Walensky called the Delta variant “one of the most infectious respiratory viruses we know of, and that I have seen in my 20-year career.”

It’s difficult to put a positive spin on that assessment.

On the bright side, PMIs out of Europe were robust in the preliminary reads for July. The services gauge for Germany printed 62.2, well ahead of the 59.5 consensus expected. (As a quick aside, one wonders what impact the devastating floods might have). At 57, the French services sector was perhaps a bit less vibrant than it could have been. Manufacturing gauges were generally strong, although the uptick in the bloc-wide composite gauge to a two-decade high (figure below) was thanks to services. Output in manufacturing declined on supply chain disruptions. New orders were the highest since May of 2000.

You could’ve written the accompanying color yourself, assuming you keep apprised of the macro narrative. “The recent surge in demand continued to put pressure on operating capacity to a degree unprecedented in the survey’s history,” IHS Markit said Friday. The rapid increase in backlogs of uncompleted work was on par with last month’s record increase.

Firms kept hiring. Indeed, the net jobs gain was the second-best in three and a half years.

At a 30,000-foot level, it’s the same story over and over again. Chris Williamson, IHS Markit Chief Business Economist, described “a summer growth spurt” in Europe catalyzed by “the loosening of virus-fighting restrictions in July,” which helped “propel growth to the fastest for 21 years.” Again, that was driven primarily by the services sector.

And yet, Williamson flagged “supply chain delays” as a persistent “major concern for manufacturing.” Those disruptions are “constraining production and pushing firms’ costs higher.” By now, those costs are being passed along. In fact, average selling prices for goods and services are seeing “near record increase[s],” Williamson said, cautioning that over the next few months, that’s “likely to feed through to higher consumer prices.”

The ECB on Thursday explicitly said the Governing Council would tolerate CPI overshoots in an effort to demonstrate a commitment to achieving its new inflation target.

By contrast, IHS Markit’s surveys for the UK showed “a sharp slowdown in business activity,” with the recovery decelerating to the weakest pace since March.

You might be inclined to suggest that the flash readings for the UK can’t be relied upon this month because they only captured three days following the easing of COVID restrictions. But Williamson seemed to push back on the idea that the UK economy will invariably hold up despite the spread of the Delta variant. In fact, he specifically mentioned “Freedom Day” and the juxtaposition with the strain.

“Any imminent re-acceleration of growth in August looks unlikely due to a steep slowing in overall new order growth recorded during July,” he said. “Concerns over the Delta variant have overshadowed the passing of ‘Freedom Day,’ and were a key factor alongside Brexit and rising costs behind a sharp slide in business expectations for the year ahead, which slumped to the lowest since last October.”

That quote captures it all: The push-pull between “freedom” from the pandemic and the rapid spread of the Delta variant, as well as the notion that although activity is robust now, expectations for medium-term growth may be on the wane.

That’s why it’s worth parsing the tedious color from PMIs. Occasionally, you’ll find a soundbite that neatly summarizes the prevailing macro zeitgeist — a rug that “really ties the room together,” as Walter Sobchak might put it.


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17 thoughts on “A Quote That Really Ties The Room Together

  1. I am currently in France.
    Due to the French entrance requirement to have been vaccinated, or have a negative covid test/14 day quarantine, it seemed safer to fly to France, (since the other passengers are most likely vaccinated), than it did to take a domestic flight within the US (since I would have no idea if the other passengers have been vaccinated).
    When I got here, I purchased a foldable, e-bike and now I do not need any public transportation or a taxi. When I eat out- I choose an outdoor cafe. It is not hard to find an outdoor table because I have never seen Paris this empty. Evidently, starting August 1, I will need a Covid passport to go to any cafes- however, I doubt it will be strongly enforced, as Macron is now worried about “anti-Macron” sentiment. The suggested fines against businesses who do not verify that their patrons have proper documentation are being lowered.
    Paris is very empty but the Parisians don’t seem to mind.

    1. Emptynester

      Nice to see your report from Paris. I’m really glad I decided not to travel this year. At this point doesn’t look like next year is clear sailing yet.

    2. Have a great time, EN – and keep the comments coming at your leisure, adds nice color to come from someone in the field, ie, away from home…I was in Thailand in 2/2020 and returned home 8 days before the world shut down…was very illuminating then, and unfortunately I haven’t been anywhere else since…

  2. I believe the quote was said by both characters early in the movie. As for the pandemic, seems like the virus will be with us for a while given that parts of the developing world like Missouri are still unvaccinated. With that we will continue to have the tug of war in narratives.

    1. Well parts of Missouri are clearly not in the developed world, I kind of doubt if it’s even developing at all. Kind of hard to catch up if you’re proud of being behind. That would also describe Texas Louisiana Alabama Arkansas and Kansas.

      1. I used to live in Iowa (35 years) and am now in KC. We in IA used to joke that if the dumbest person in IA moved to MO it would raise the IQ of both states. It does seem that the folks here (both Kansas and MO sides of the border) do seem to be in some kind of race to the bottom of the US in general. Our governor is still fighting to make sure we don’t provide Medicaid for those in need, that we don’t need to be vaccinated, shouldn’t have our kids be protected from COVID, that we refuse government aid for roads and such, that we don’t accept the need to provide basic education for our kids, etc. To my knowledge MO may be the only state that will certify teachers who have no college degree, although there may be others on your list with the same deep insight.

        1. There’s certainly a reason why if you look on Zillow real estate prices are low in areas of my list. These people are anti-business anti people, anti history, anti-science and anti-government
          Not sure if there’s anything they are for.

          I was telling a guy today that the wealthy aren’t paying their taxes and the poor are having to pay the taxes for the wealthy. He explained how some billionaires and his family were paying taxes just like anyone else same percentage as I did. He also went on to say that we were prosperous 100 years ago. 100 years ago here in Colorado the government was using bayonet points to force workers to work and machine gunning them if they chose not to work. If that’s your definition of prosperity well that’s hell in my book. We were a third world country according to Europe a nobody.

          The guy was doing moving work moving people from place to place in the apartment, you think he was from a billionaire family? A billion lies family yes.

  3. With liquidity fuelled narrative apparently rock solid these days with US equities at ATH, I keep wondering whether the delta variant or COVID more generally would make it into a list of top 3 issues that would worry investors or have markets moved on at least as far as the US equity market is concerned. One might grant that there are regional idiosynchratic obvervations of impact but most interested on whether it is a gamechanger for the incessant crush of equity and credit risk premium?

  4. The Israeli data conflicts with data from other countries. One possible explanation is that in Israel, vaccinations were given earlier and hence their data could reflect vaccine efficacy declining over time, significantly for symptomatic disease but less so for severe disease. That would be consistent with what is known about declining antibody levels versus sustained T-cell response. A vaccinated person with lower antibody levels but sustained T-cell levels would be more likely to contract mild Covid but not more likely to develop severe Covid. The Israeli data will be watched closely as countries decided when to start giving vaccine boosters. A key aspect of the Israeli data that has not been reported is vaccine efficacy by date of vaccination – i.e. are they seeing declining efficacy for the entire vaccinated population or only for the earliiest-vaccinated population. This data has likely not been reported publicly, but presumably the Israelis are looking at it.

  5. Comments like the following simply make unvaccinated individuals more defensive and might decrease any inclination to get the vaccine: “Well parts of Missouri are clearly not in the developed world, I kind of doubt if it’s even developing at all. Kind of hard to catch up if you’re proud of being behind. That would also describe Texas Louisiana Alabama Arkansas and Kansas.”
    It turns out that Missouri is not one of the top five (“In the past week, the five states with the highest case rates — Arkansas, Florida, Louisiana, Missouri and Nevada”) hotspot states. It also turns out that CVS was not reporting vaccinations in Kansas and the fully vaccinated rate is 49.59% which is ahead of Iowa and lots of other states. Idaho has a very low rate of vaccination (37.03%) but nobody criticizes Idaho. (It seems that providing links to document remarks prevents comments from appearing here.) Commenting based on one’s prejudices rather than based on the facts seems counterproductive.

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